PREMIER Campbell Newman has described a Gillard Government threat to withhold further health funding or take it out of other programs as a "sad, sick joke".

"The Feds have owned up that essentially they had cut the (health funding) money," Mr Newman told 4BC.

"What they are doing now is even more outrageous. It's just a sad, sick joke."

Mr Newman said he had no problem with Federal funding going directly to the State's hospitals.

"What isn't acceptable is that they are saying 'what we'll do is take the $103 million out of other programs in Queensland' and who knows what that means," he said.

Mr Newman said his government had increased its health funding in the last budget.

'My government takes responsibility for the things that we have had to do over the last 12 months in Queensland in terms of the task of repairing the State's finances, but we actually in the health sphere increased the budget by $817 million."

He said Federal Government claims the clawback of funding was based on revised population estimates were flawed, given the Commonwealth statistician's figures that Queensland's population increased by 67,000 last year.

Ms Gillard last night announced she would reverse a decision to retrospectively cut $107 million from hospitals in her home state of Victoria, but threatened to cut even more money from the Newman Government if the funding "game playing'' didn't end.

She said the Victorian money would be paid directly into the state's Local Hospital Networks, redirecting funds "from areas where Victoria might otherwise have received Commonwealth funding''.

Mr Springborg described the Gillard Government's handling of the issues as "completely bizarre and absolutely erratic''.

"Basically, we've got the Prime Minister of Australia saying: 'Cease and desist, shut up or we're going to punish you financially,'' Mr Springborg said after addressing an Australian Medical Association Queensland breakfast today.

"I think it's probably what you see from a government in its death throws.

"The Prime Minister needs to understand that this is not just a concern of Queensland and Victoria. Every single state health minister, regardless of their political colour, are concerned about these retrospective cuts to health funding."

Mr Springborg accused the Gillard Government of playing politics in an election year.

"Labor are obviously under pressure in Victoria and by the fact they've now spurned and ignored Queensland, they've obviously written off Queensland for the next Federal election,'' he said.

AMAQ president Alex Markwell said the average patient "didn't care where the money comes from''.

"They just want to know that when they go to hospital, they'll get the treatment they need,'' Dr Markwell said.

"I think most people were disappointed and surprised to see that Victorian hospitals have had their funding returned, but not Queensland."

Metro South Health chief executive Richard Ashby said yesterday his district's federal cut of more than $18 million had forced a "total surgery'' reduction at Brisbane's Princess Alexandra Hospital of about 10 per cent until the end of the financial year.

"It is important to note that this decision will have no effect on trauma, emergency and cancer surgery, and other urgent services."

Federal Health Minister Tanya Plibersek accused the Newman Government of a "dishonest campaign to shift responsibility from its own savage cuts to health services''.

"If you live in Queensland, you either know someone who's been sacked, your local hospital has been affected or a relative's nursing home has been closed down as a result of Newman LNP Government's cuts,'' she said.

Earlier, it was reported that elective surgery has been slashed at one of Queensland's biggest hospitals and others could follow suit as a stoush over health funding deepens.

Last night the Gillard Government threatened to withhold another $234 million in health funding from the Queensland Government this financial year.

Accusing the state of playing games over hospital budgets, Prime Minister Julia Gillard flagged the Commonwealth would consider bypassing the Newman Government and paying the money directly to hospitals.

Queensland has already accused the Federal Government of shortchanging the state

The State Government claims a shortfall of $103 million this financial year because of "flawed" adjustments to population estimates.

Making the threat in a letter to Premier Campbell Newman last night, Ms Gillard made no mention of the $103 million shortfall.

Hours earlier, she had caved in to Victoria's demands and promised an extra $107 million would be paid directly to her home state's hospitals.

The Prime Minister threatened to force the states to pay upfront for health services and then claim the money back from the Commonwealth, which would put more pressure on their budgets.

The stoush comes as Brisbane's Princess Alexandra Hospital revealed 10 per cent of "total surgery" had been cancelled until at least the end of the financial year because of the federal budget cuts.

This morning, Federal Health Minister Tanya Plibersek accused the Newman Government of cutting $3 billion from its health budget and then trying to blame the Commonwealth for the shortfall.

Ms Plibersek said the Federal Government would essentially take control of public hospital funding and pay the money directly to hospitals in the state unless " the Queensland Government behaves".

"Where state governments are ripping money out of the health system we have to act," she said.

"We're going to take money from the Victorian Government...if we have to do that in Queensland, I'm open to doing that."

"It's not something I'm keen to do, it might be something I'm forced to do."

She said the state had received an extra $155 million this year, a 6.2 per cent increase.

"If we give more money to Queensland Health, how can they possibly be doing less with it?"

She said thanks to Australia's strong dollar, the cost of running health systems was expected to be lower this year.

"You have to ask if we give more money to Queensland Health, how can they possibly be doing less with it," Ms Plibersek said.

She was unable to pinpoint a deadline for the Queensland government to improve its health system.

" We'll see how the Queensland government behaves in the short term," she said.

Metro South Health chief executive Richard Ashby said yesterday the Princess Alexandra Hospital had reduced surgery by 20 out of 200 operating theatre sessions per week to help meet an $18.8 million reduction in Federal Government funding.

Dr Ashby yesterday said Metro South Health had no choice but to reduce non-urgent elective surgery in the short term, after the "unexpected and unprecedented" Federal Government budget reduction.

He said the cuts would be made by postponing category 3 elective surgery, such as hip and knee replacements and some spinal surgery.

"Our first priority is to communicate with patients affected by these changes to advise of expected delays," Dr Ashby said.

"Patients may wish to speak with their general practitioners about other referral and treatment options."

Many other Queensland public hospitals are also battling severe budgetary shortfalls and have announced drastic job cuts.

Princess Alexandra Hospital urology department director Ross Cartmill said he expected the cuts to category 3 surgery to drag on for at least another year.

"If you're a category 3 patient in Metro South, you're not going to be treated in the forseeable future," Dr Cartmill said.

"The PA has already been told its budget for next year is only increasing by 1.2 per cent so that means in real terms, we're going backwards."

Federal and state governments have spent months blaming each other for the latest health job cuts sweeping Queensland.

The Gillard Government slashed Queensland health funding last December by $103 million when it revised population estimates.

But in her letter to Mr Newman, Ms Gillard insisted Labor was giving Queensland hospitals $234 million more this year than what they would have received under the Howard government.

"The Federal Government expects State and Territory Governments to abide by the agreement they have entered into," she wrote.

"The alternatives to the agreement being upheld and abided by are ... the termination of the agreement.

"The extra funding that would have been delivered by the Federal Government to States and Territories will be delivered direct to hospitals and other service providers."

Mr Springborg is due to speak today via a telephone hookup to a Senate inquiry into the impact of the cuts.

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